Incompatible Provisions

February 6, 2018 / Contractual Issues

Blog author: Peter Hibberd

Contract interpretation and litigation, it is said, are not exact sciences: this is no better illustrated than by the recent case of MT Hojgaard vs E.ON Climate & Renewables UK Robin Rigg East Ltd, which went all the way to the Supreme Court. At the heart of that case was the tension between different provisions within the various documents that constituted a design and build contract for the design, fabrication and installation of foundations for 60 wind turbines.

In essence the problem was whether, upon interpretation of the different wordings within diffuse documents, the contractor had a fitness for purpose obligation or one of reasonable skill and care. If it were fitness for purpose, then any defect in the foundations became the responsibility of the contractor, notwithstanding that it had complied with the specification and adhered to the appropriate code of practice (and regardless that the latter contained a significant error). Fitness for purpose is a heavy obligation. Reasonable skill and care is less onerous: just because the foundations failed did not make the contractor responsible. It might have been, but not inevitably – negligence on the part of the contractor would need to be proven.

A properly drafted building contract should avoid any incompatible provisions. It should, among other things, make clear whether the contractor has any design responsibility and, if so, the nature of that obligation. That is what JCT standard form building contracts accomplish: but remember that the contract is more than just one such form.

The JCT suite of contracts reflects the differing nature of building projects and the types of parties to the contract. So selection of the appropriate contract – whether, for example, it is design and build, the standard form of building contract, the major projects contract or minor works with contractor’s design – is fundamental. The selection must reflect the desired extent of contractor’s design.

Notwithstanding the title of a contract, it is always necessary to establish whether there is any design by the contractor.For example the standard form building contract contains a contractor’s designed portion that becomes operative when the recitals are completed accordingly. The minor works contract has a separate version for use with contractor’s design but is still dependent on completion of the appropriate recital. But in addition to the general nature of the work and whether it includes design, there is the matter of extent of any such design. This is where other documents come into play.

The 2016 design and build form, for instance, refers to the contractor’s design being comprised partly in the contractor’s proposals and employer’s requirements. Other JCT contracts do too, and it is those technical documents that prescribe the extent of design – and sometimes much more.

Liability for any such design is generally that of an architect or other designer, in other words, a duty of reasonable skill and care. This also applies to the major projects contract, but its contract guide provides an alternative provision, if required, for a “fitness for purpose” obligation. Such a provision is not referred to in other JCT contracts because it is believed that only major contractors should ever be asked to take on such an onerous obligation. Although JCT forms of contract go a long way towards avoiding problems on pinning down the extent of the design and the nature of the design liability, potential problems remain. For instance:

Choosing the wrong contract for the extent of design required

Erroneous completion of the contract form

Including in the other contract documents obligations that are additional to or incompatible with those in the contract conditions (such as by expressly or implicitly requiring a warranty).

Such a problem arose in the case of Hojgaard. The Supreme Court said: “There have been a number of cases where courts have been called on to consider a contract which includes two terms, one requiring the contractor to provide an article which is produced in accordance with a specified design, the other requiring the article to satisfy specified performance criteria; and where those criteria cannot be achieved by complying with the design.” It went on to quote Hudson’s Building and Engineering Contracts: “generally the express obligation to construct a work capable of carrying out the duty in question overrides the obligation to comply with the plans and specifications, and the contractor will be liable for the failure of the work notwithstanding that it is carried out in accordance with the plans and specification…”

The case law summarised by the Supreme Court shows how onerous an express obligation upon a contractor to construct a work capable of carrying out a specific duty can be, and how such an obligation may arise inadvertently. Ultimately reconciliation is decided by reference to ordinary principles of contractual interpretation.

As well as using the appropriate contract to reflect one’s intentions, it is equally important to take care in drafting the technical requirements that will become contract documents. Those relating to design issues must ensure, for example, that where a performance obligation is included it is compatible with the contract provision on liability. If a difference is intended, the contract conditions must make this clear. The subsequent need for reconciling provisions should be avoided.

None of this is an easy task – especially where there is multiple authorship of documents – but overlooking its importance may prove expensive.